The dramatic and disruptive growth of the payments industry has challenged traditional payment methods by creating innovative products that increase consumer choice and are more aligned with digital consumer lifestyles. At the same time, this growth and innovation has increased complexity in the financial services ecosystem, exposed customers to new and emerging risks, and heightened regulatory attention.
The Australian Government is on a regulatory drive to modernise, future-proof and create a fit-for-purpose payments regulatory architecture with service, strategy, safety and simplicity at its core. On 30 August 2021, the Australian Government released its final report of the Review of the Australian Payments System (‘Payments Review’) led by Scott Farrell and supported by Treasury, which included 15 recommendations to improve the regulatory environment for payment service providers and consumers.
In December 2021, the Australian Government released its response to the Payments Review agreeing to 14 of the 15 recommendations, which is expected to create efficiencies depending on the quality of deliberations and implementation. This response is a step in the right direction, with significant amount of work expected from the government, regulators, and industry. The potential implications of the response (if successfully implemented) are the development of a new strategic plan and governance structure for the Australian payments industry, stronger action on existing and new policy issues, creation of mandates and technical standards over self-regulation, and movement of key personnel in regulators and industry. The complete Australian Government response to the Payments Review is available, which we have categorised under four pillars and summarised below.
This enhanced governance and leadership structure is intended to promote efficiency and competition in the payments ecosystem, provide payment services providers with more guidance on increasingly complex developments and provide a forum to address key marketplace challenges.
Treasury, in collaboration with the regulators, industry, and consumer and business representatives has agreed to develop a 5 year forward looking Strategic Plan (‘Strategic Plan’) to outline the Government’s objectives and vision for the payments industry.
The Strategic Plan is expected to detail the policy priorities and strategic direction for the payments ecosystem, and be sufficiently flexible in line with the dynamic nature of the payments marketplace. It would enable more coordinated decision-making by the government, regulators, industry, and consumer groups.
Organisations need to be perceptive and adaptable to the abovementioned regulatory changes such as an update of the Payment Systems (Regulation) Act, 1998 and mandatory application of the ePayments Code. Payments service providers should be prepared to consider the applicability of the new regulations to their organisations, assess such regulations against their current risk and control environment, and accordingly adjust their risk and controls framework to remain compliant.
Empowering customers and businesses
The Government has agreed to support regulators and industry bodies to provide educational materials to small businesses. The Government’s Digital Economy Strategy, the refresh of the National Financial Capability Strategy and RBA’s Review of Retail Payment Regulation is intended to incorporate initiatives which educate consumers and businesses, and in turn enhances their capability to deal with the evolving payments landscape and methods.
Get ahead of the curve
The Australian Government is taking much needed steps to reform their payments regulations to better support innovation and disruption.
Treasury will commence consultations on the abovementioned measures, with comprehensive response to be provided by mid to end of 2022. Industry participants who are interested in being part of and influencing meaningful change within the payments regulations should partake in such consultations and actively engage with the government, regulators and payments industry bodies. Furthermore, payment service providers should be prepared to embrace and assess the impact of these regulatory changes and adapt quickly to remain relevant and customer centric.